India is a nation of around 125 crore people, growing at a fast pace. With this, the energy demand too is on the rise. Energy is one of the rudimentary needs for the survival of an individual thereby the country. According to the Central Electricity Authority (CEA), India’s apex power sector planning body, the per capita electricity consumption for 2014-15 was 1010 kWh which is among the lowest in the world. China on the other hand has a per capita electricity consumption of 4000kWh, which is four times that of India. Most of the developed nations have a 15000kWh per capita consumption of electricity.
280 million people in India do not have access to electricity. While the government has been taking various initiatives to enhance energy access, a lot remains to be done to ensure that no single household remains in the dark.
Challenges to the Power Sector
With a total installed generation capacity of 1362 MW in 1947 to 2, 84,303 MW as of December 2015, Indian power sector has shown tremendous growth. But its long term planning has been a constant miss in the policy framework for this sector. From the Indian Electricity Act, 1910 to the Electricity Act, 2003 and now the Electricity Amendment Bill, 2014, loopholes weaken the grip across the entire power value chain. (Generation, Transmission, Distribution)
India heavily depends for coal on power generation. Coal India, the state controlled mining company, has been unable to meet the demand for domestic coal. India’s current coal needs amount to 840 Metric Tonnes (MT), whereas the supply consists of only 604 MT. Slow enviromental clearances and land acquisition issues are some of the bottlenecks in this sector. This forces the Government to import coal, which adds to the Current Account Deficit (CAD).
Discoms in India have been bleeding losses for over many years now. As of September 2015, the discoms all over the country have a debt of Rs. 4.5 crore.
The transmission towers which are mostly set up by the state owned transmission firm Power Grid Corporation (PGCIL) are the backbone of the electricity sector in the country. Conversely, we have an extremely fragile backbone. Transmission towers often collapse across the country due to high speed winds and pre-monsoon winds. In May, 2014, 30 transmission towers either collapsed or impaired due to dust storms in the northern part of the country. Despite the twin blackouts in July 2012, lessons haven’t been learnt to ensure uninterrupted supply of power to the end consumers.
The Ministry of New and Renewable Energy (MNRE) recorded 38,283 MW of capacity addition through renewable sources of energy (Wind, Solar, Small Hydro, Bio-Power, and Waste to Power) as of November 2015. Currently, the renewable sources contribute approximately 13 per cent to the installed power capacity. There are three major hurdles that challenge the renewable sector in India.
Unpredictability, location specific potential and high costs involved. The cleaner sources such as the wind and solar are highly unpredictable in terms of availability, thus, affecting the generation of power. When we talk about location specific potential – this refers to the issues that the areas of generation are far away from the consumers or the transmission grids.
Solar power in India costs around 13/kWh, which is a very high rate. Moreover, solar power is something which we can be utilised only during the day and not in the evening and according to various studies it has been realised that peak hours in India occur during the evening.
A coal plant operates at 75 – 80 per cent Plant Load Factor (PLF) whereas a power plant based on renewable sources operates at 20 per cent. This leads to further increase in the utility costs and thereby higher power tariffs.
Currently, the nuclear power plants account for 3.5 per cent of India’s electricity generation. Although, the expected share of nuclear power is a mere 10 per cent with the capacity tripling, this source of electricity has set high hopes for the sector. India is still at a nascent stage of using nuclear energy for generation of electricity. For FY14, India’s nuclear energy generation was 34,199 Million Units (MUs) which is equivalent to 4,780 MW of generation capacity. As of now, 40 per cent (1,940 MW) of India’s nuclear power capacity, operates under the safeguards of International Atomic Energy Agency and the power plants make use of imported fuel. The major sources of our imports are Kazakhstan, Russia and France. With the recent, India – US Civil Nuclear agreement, India is expected to have a surge in the market of nuclear power.
India with these foreign collaborations is confident of building four nuclear power plants, namely, Kundankulam, Kakrapar, RAPP and Kalpakkam. Over the next five years India is hopeful of doubling the generation capacity through nuclear energy.
Exploration, production and processing of coal needs to be speeded up and expanded to bridge the demand-supply gap for coal and thereby enhance the capacity to generate power. It’s is also hoped that the Cabinet will adopt the Kelkar committee recommendations on PPP project to provide direction for resolution of issues on stranded assets.
However to fulfil the rapidly growing demand for energy in India huge commitment of capital is needed. Aspects such as incentivizing capital investment, systemic and structural weakness in the system need ample attention. Project financing remains a big issue for power projects in India. To facilitate the project financing, new schemes like green bonds and dollar denominated tariff has been discussed. Once finalized, these will enable Indian companies to raise capital at home. It will also be a major step towards the government’s commitment on reducing India’s carbon footprint.
The debt restructuring UDAY scheme will not only help to bailout but also provide long term viability to discoms. It is in the interest of consumers that this scheme be extended to discoms which are being operated under PPP scheme with the government.
The Tariff Policy that has been devised by the Union Power Ministry is expected to boost the regulatory mechanism for distribution companies and clear some of the roadblocks presently being faced by the industry. In order to implement new power projects there needs to be a robust system of approvals in place. Stimulating necessary grid strengthening, capacity addition needs to be persistent with regulatory and tariff reform.
The National Renewable Energy Bill, 2015 drafted will consolidate the renewable energy sector and give it a much needed institutional, structural and policy roadmap. This will help homogenize central and state governments to formulate laws and implement them. This makes sense in light of the recent Climate Change Agreement in Paris that has strengthened India’s focus on the increased use of renewable energy and has given renewed vigour to the government’s plan to increase its renewable power capacity to 175 gigawatts by 2022.
To enable the Government policies which will modernize the nation and expand the business potential of the country, India needs to have a well-managed expansion of energy supply. Policy-makers have an added responsibility to tackle obstacles that deter investments in the power sector. The country needs to reach a point where energy-supply becomes a spur rather than a hindrance to its growth.